What is decoupling, is it going to work for me?
All done without paying one cent of ABSD (Additional Buyer’s Stamp Duties)
You know that you have made a handsome profit on your current property but you are reluctant to sell it because it is freehold and it fits your family’s needs perfectly at this moment.
“Where can we ever find a bigger kitchen our house?” the Significant One always laments whenever you visit show flats in a bid to tempt her to sell.
Besides it is near her work place and she loves the space and potters round the house all the time
Listening to her sing in the kitchen while cooking always brings a smile to your face. Not a good idea to disturb this peace at any cost.
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Besides the current place is near the kids’ schools and they save so much time commuting and can show up fresher and more focused at school.
Does the above scenario sound like something you are going through?
Are you also a private home owner wondering if you should take profits and leverage from your current property but are reluctant to sell the place which you and your family love?
This is exactly Mark and Michell’s dilemma when they spoke to us a few months ago.
“How to continue living at our current place but still buy another investment property without incurring the much dreaded 12% ABSD and still get the highest possible loan amount?”
Mark and Michelle own a almost fully paid up condo in the West Coast area and they they are wondering whether they can unlock some of the funds in their property to buy another second property.
This means that Michelle can free up her name and buy another property in her sole name and not have to pay the additional buyer’s stamp duties. She also gets to borrow up to 75% of the property purchase price which is not possible if she were to buy this as a second property.
So we did the sums for them and showed them how much they can unlock from the decoupling exercise:
| Mark | Michelle |
Age | 42 | 38 |
Income | $12500 | $8500 |
Available CPF | $53,000 | $45,000 |
CPF to be refunded | $180,000 | $150,000 |
So the idea here is for Michelle to “take out” her name from the property so that the property is now owned by Mark only and she can buy another property in her own name.
Contrary to popular belief, there isn’t a way to just go to the law firm to sign a form to say: “Here you go dear husband, now I confirm I give you half the house and I am taking out my name from our matrimonial home. Later we settle the money part ourselves”
Not so fast, dear peeps. The right way to do this is do a part purchase, meaning Mark takes over Michelle’s share of the house. In a nutshell, this is how it works:
The property is now worth $1,400,000
Mark will have to buy over Michelle’s half of the property which is valued at $700,000.
The current outstanding loan amount is $680,000
So right now, Michelle’s half of the loan is $340,000. Michelle’s share has now appreciated to $700,000(half of the current valuation of $1.4m). What she stands to gain from selling her part share to Mark is $700,000(current value) minus $340,000(her share of the outstanding loan).
She will gain $360,000.
From this $360,000, she will need to return the CPF which she has withdrawn to buy this property, the principal amount plus accrued interest. This amounts to $180,000
So the cash she will get from this sale of half share of the property to Mark is
$360,000 less $180,000 = $180,000 cash
She will also have a total of $225,000 in her CPF for her next purchase.
For Mark to purchase her half share of the property, he will need the funds shown in the below table.
Mark’s New Loan after taking over Michelle’s share | |
Half Share of the current valuation | $700,000 |
Half Share of the existing loan | $340,000 |
Down payment (25% of $700,000) | $175,000 |
Outstanding New Loan | $525,000 |
Buyer New Loan ($700,000+$340,000 less $175,000 | $865,000 |
If Michelle were to take out her name, she will have $180,000 cash which she can help Mark take over the share of her property.
Conclusion
With the CPF and cash that she has freed up from the sale of her share of the property ,she will be able to still buy another property that is priced at $850,000. So now she and Mark can jointly own 2 properties priced at $1,400,000 and $850,000 respectively instead of owning just one.
I have deliberately kept the numbers to a minimum here so that you can get a general idea of how you can benefit from leveraging on properties to increase your wealth in a effortless and low-risk way.
We have much more info for you like monthly instalments for both the properties, the cash flow needed for both properties, what other solutions if you are not able to take the required loan amount etc.
If you would like to have a much more detailed customised report for yourself, call me Lille Low at Mobile No: 9022-8919 and we can arrange a mutually convenient time to go through all your options.
